Kone OYJ: Risks to margin trajectory, & uneasy TKE deal path ahead

Research evidence excerpt

Kone OYJ: Risks to margin trajectory, & uneasy TKE deal path ahead

Barclays | Kone OYJ

Receivables and payables jump, worth keeping an eye on those: Kone has a very resilient

business with limited volatility across working capital components between the quarters. But

2Q has seen movement that may indicate underlying risks, in our view: 1) Trade receivables

have increased by €140m (5% of all invoicing during the quarter and the highest DSO over the

past 7 quarters), which may possibly (among other things) indicate changes in quality/payment

conditions; 2) Trade payables have jumped by >€190m (20% sequential increase, the highest

quarterly move since at least pre-Covid) helping FCF generation in the quarter.

TKE combination on track (according to Kone), but still a long way to go (in our

view): Management confirmed that preparation for a potential TKE combination is progressing

to plan, with fruitful cooperation (within the legal framework) between companies. Our view is

that there is a lengthy and uncertain process ahead with the company appearing to have not yet

submitted anti-trust filing everywhere ("filing submitted or underway across all key

regions") three months after the deal announcement. We see challenging catalysts ahead with

regard to that transaction: 1) anti-trust reviews potentially taking 12 months, 2) likely sizeable

divestments in 'buyers' market, 3) elevated leverage post closing and limited ability to reduce

debt due to dividend commitments, 4) shareholder structure post closing with c30% private

equity ownership and potential overhang.

Order intake margin moderated in 2Q (a competitor saw improvement in this metric): Kone

disclosed that order intake margin had declined y/y in 2Q26, after being stable over the last four

quarters.